Downgrades hammer fuel price – AA

Fuel price rises will be the first major expense to hit South Africans in the wake of depreciation of the Rand against the US dollar, which has affected buying prices for international petroleum.

This is according to the Automobile Association (AA), which was commenting on unaudited mid-month fuel price data released by the Central Energy Fund (CEF).

The AA’s mid-month data is forecasting petrol to increase by up to 55 cents a litre in May, diesel by around 39 cents a litre, and illuminating paraffin by an estimated 41 cents a litre.

“The loss of confidence by investors, and the sovereign ratings downgrades by ratings agencies Fitch and S&P, have led to the Rand slipping heavily against the US dollar, down from around R12.35 at the beginning of the month to its current position of around R13.40.”

The Association said the Rand’s weakness contributed three-quarters of the expected fuel price increases at the end of the month, with hikes in international petroleum prices accounting for the balance.

“However, it is a long time till month end, and there is no certainty that the impact of the downgrades has been fully priced into the economy. The picture for May could be substantially different,” the AA noted.

The Association contrasted the current position with the previous month’s.

“If the Rand had stayed on its previous upward course against the US dollar, it may have been strong enough to overcome the significant increases in international petroleum prices, resulting in a smaller increase in May,” the AA concluded.